Banks bomb on stress tests for minority lending

Banks bomb on stress tests for minority lending

A buoyant Treasury Secretary Timothy Geithner reassured the public that the “big 19” — the 19 giant banks and financial houses that, to hear him tell it, are responsible for the fate of Western capitalism — have passed their Treasury-imposed “stress” tests.

That wasn’t hard to do, especially after taxpayers greased the skids with more than $50 billion in handouts. On top of that, the stress tests were puff-ball trials that didn’t impose tough or new government-enforced financial requirements or restrictions on the banks.

Tests aside, a slew of debates rage on. How much taxpayer cash do the banks and financial houses really need? How much more will they need on top of what they’ve already gotten? How long will they need it? Will the money really ensure permanent solvency?

And forgotten in the hubbub over the Geithner-glossed report is the painful fact that thousands of black and Latino homeowners are still left holding the financial bag for the subprime mortgage mess.

Fair Finance Watch and the Center for Public Integrity both issued reports on mortgage lending practices on the eve of the Geithner bank stress tests. The reports revealed that from 2005 to 2007, the 19 bailed-out banks and financial houses went nearly $1 trillion into debt with taxpayers.

The banks ran up that debt through holding companies, investment houses, financial and real estate subsidiaries, and through stock purchases and sales. But the bulk of it came through toxic subprime loans to mostly minority homebuyers.

The reports also showed that the subprime loans did little to help revitalize grossly underserved minority communities. In fact, Bank of America — which is holding its hands out for another $34 billion in taxpayer funds — had one of the lousiest records in lending to minorities, and the loans that it did make were far more costly than those it made to whites.

But Bank of America was hardly the sole bad actor. The top bank welfare recipients raked in tens of billions in profits and taxpayer handouts while engaging in Scrooge-like lending policies. When they did lend, they charged rates that would make loan sharks blush.

Wells Fargo charged African Americans more than twice as much as whites for home loans. JPMorgan charged both African Americans and Latinos more than twice the rate of whites. Citigroup, U.S. Bancorp and Wachovia charged minorities one and a half times more.

On top of that, blacks and Latinos were more than one and a half times more likely than whites to be denied loans by the top banks receiving taxpayer bailout cash. And income wasn’t a major consideration for the lenders who were pitching subprime loans — the prime determinants in deciding whom to target were race and the neighborhoods where they lived. A study conducted by the U.S. Department of Housing and Urban Development found that upper-income blacks were one and a half times as likely to have a subprime loan as persons that lived in low-income white neighborhoods.